Tag Archives: Industrial Equipment

Price, Innovation & Integrity: Partners in the Custom Automated Equipment Business

In an earlier blog we talked about pricing and asked whether our focus on price has become an obsession that is costing us in ways which are substantial but not always obvious.

One of those less-than-obvious but costly impacts can be the loss of partnership between vendor and purchaser.  At TCA, our Statement of Core Values includes the statement that “We seek true partnerships that create value for all participants”. It is our conviction (supported by many years of experience) that a true partnership relationship between vendor and purchaser will produce the best result for both parties.  This is not some namby-pamby arrangement where accountability is thrown to the wind; rather, obligations and commitments on both sides are fully recognized and diligently honored, but the spirit of a shared goal including the need for both sides to create value from the transaction underlies the relationship.

This is particularly true in an environment like the designing and building of custom manufacturing machinery and systems.  The purchaser is spending large sums of money and will be depending on the equipment for extended periods of time.  Also, the equipment will directly impact both his ability to serve his customer and his ability to be profitable.  A supplier like TCA will also invest significant dollars not only in developing and maintaining the infrastructure and systems required to design, build, test and support custom automated production machinery, but also in the development of staff who remain technically and technologically current and who are capable of, and are encouraged to, think innovatively on behalf of our customers.

Of course, price is part of the value equation but where true partnership exists, there is confidence to “pursue creative solutions as a means of providing increased value to all stakeholders” (that’s how we define innovation at TCA) and there is confidence to “say what we mean and mean what we say” (that’s how we define integrity).  Stakeholder value rises to the top in an environment of partnership because all parties are freed to focus on how we can be valuable (innovation) rather than how valuable we can be (pricing).

At TCA we have many customers who recognize the value of a purchaser/vendor partnership.  Indeed, there are times when an outsider would be hard-pressed to know which staff on a project are from TCA and which are from our customer; this is exactly as it should be because we are all working toward the same goal.  The benefits have been so readily recognizable and the level of trust so deep that a major manufacturer in business for over 50 years named us as their exclusive supplier of custom automated machinery.

It has been widely acknowledged that an adversarial relationship between labor and management will not work in the ‘new economy’.  However, the relationship between purchaser and vendor can be just as adversarial if the focus on price is allowed to set the tone for everything that follows.  A classic adversarial relationship was changed when Mikhail Gorbachev reportedly said to Ronald Reagan in 1987 We have a secret weapon – we shall cease to be your enemy”.  This changed relationship between the world’s superpowers allowed a huge redeployment of resources and facilitated previously unimaginable levels of partnership in areas like the space program.  The move from protagonists to partners by purchasers and vendors can also redeploy strategic corporate resources and not only restore value that has been lost, but create value that has never been envisioned.

INDUSTRIAL EQUIPMENT and our (not so) grand obsession with PRICE

We are obsessed with price.  Whether it is for products or services, price seems to have become the single most important determinant in most purchases.  Retailers offer to match each others’ price in a rush to the bottom, with one preaching that a lower price results in a better life; but, is it true?

In the business-to-business marketplace too, price has assumed an all-important position.  Given the realities of global competition, an emphasis on price at all levels of the business cycle is not only understandable, it is essential.  However, have we followed the historic human tendency and ‘carried it too far’?  How important is price; really?

Let’s admit right up front that price is important.  It is a vital element of consideration when we compare the value of competing proposals.  However, it certainly does not stand alone.  In fact, when price becomes detached from the overall value proposition, when it becomes the overwhelmingly predominant or even singular focus, it is a dangerously incomplete and unreliable measure.  Price is an honest measurement only when balanced against other factors.  A ‘price only’ or ‘price-above-all’ approach to purchasing excuses us from learning the essentials, from actually thinking about what we are doing.  However, we use the excuse at substantial risk.

What are these other factors that we must take into account during the purchasing decision?  At a minimum they include providing answers to three basic questions:

  1. What Are we Buying?  Do we thoroughly understand what we are purchasing and how it fits into our business?  In the final analysis, we are buying goods or services that will allow us to provide recognizable value to our customer (and to the ultimate consumer if they are not the same entity) and do it in a manner that allows us to receive value from the transaction too.
  2. Who Are we Buying For?  This question has a number of sub-questions but two are particularly important: 1) do I understand how they will use what I am purchasing, and 2) do I understand what will be their challenges in its use?  For example, perhaps our purchase is custom automated machinery to be used by the production division of our organization, a pressure cooker of dates, budgets and stringent quality controls.  Will minimizing the initial capital expenditure adversely affect subsequent expenditures on maintenance, labour requirements, our ability to sustain production requirements, quality of our products or services, our ability to respond quickly to changing market requirements (in other words, lifetime costs and capabilities)?  In the end, we are all dependent on our corporate ability to do our part in providing sustained satisfaction to the ultimate consumer.
  3. Who Are we Buying From?  Continuing with our production machinery example, we will need to ask ourselves: Do they truly understand our operating environment and where their product or service fits into our ability to provide value to our customer?  Will they not only support their product but support our production personnel; or, are they responding to our price-only purchasing approach by being a price-only supplier and providing minimal support?  Are they an ethical company; do they have a transparent approach to doing business; do their employees, suppliers and customers speak highly of them?

We all know that there are substantial benefits to price competition.  Price competition drives efficiency.  Price competition drives innovation.  But does price justify our obsession with it?  A less than thoughtful response will cost us in the long run.